SOUTH KINGSTOWN — Even though China’s economy is the fourth largest in the world, its stock market has almost no global impact, a University of Hawaii finance professor told an audience at URI’s Chafee Auditorium on Tuesday night.

Rosita Chang, director of Hawaii’s Confucius Institute at Manoa and a former business professor at URI, gave the sixth lecture in URI’s honors colloquium — China Rising. Chang is the only Asian woman speaking in the series.

Some see China “as a brutal authoritarian state,” Chang said, others see it as an example for developing countries, “growing at 9.5 percent annually for 25 years” and lifting millions of people out of poverty each year.

For perspective, she said, China has only slightly more land than the United States, with nearly five times the population and only half the agricultural space. A quarter of its population, or more people than live in the United States, lacks a continuous water supply, she said.

Its gross domestic product is 20 percent of the United States’. In 1983, it attracted more foreign investment than the U.S., once the world leader.

Projecting charts and graphs onto one of three giant screens behind her, she guided students, former colleagues and the curious into China’s business climate.

Although its people are known for their work ethic, frugality and respect for authority, its challenges are poor corporate leadership, rampant corruption, uncontrolled pollution, income inequality and an ineffective financial system.

Ninety percent of China’s corporations are state-owned enterprises. SOEs hold most of the fixed assets and employ more than half the workers but produce only 17 percent of China’s industrial output.

The average return on assets for an SOE is 3 percent, she said. The private sector’s average is 7 percent.

“When you find a very profitable enterprise,” Chang said, citing an unofficial tenet of Chinese-style capitalism, “go private and leave the unprofitable ‘dead’ with the state.”

Chang has directed Hawaii’s Confucius Institute for a year. She will help inaugurate URI’s Confucius Institute in ceremonies today, followed by a public reception at 2:30 p.m. in the library’s Galanti Lounge.

Bryant University also has a Confucius Institute, which promotes the teaching of Chinese language and culture around the world. Each institute gets $100,000 in seed money from Hanban, China’s education ministry, plus thousands of Chinese books, artifacts, a curriculum and videos for teaching Chinese as a second language, and the exchange of students, professors, research and culture.

“Confucius Institutes may be seen as propaganda,” Chang said, but to her and many others, “they may be seen as promoting a better understanding of Chinese language and culture.”

Chang said that in 1991, the communist government “decided to embrace the ultimate symbol of capitalism, the stock market,” but “it did not embrace it completely.”

“A” shares are tradable on the domestic stock exchange, for local investors only. Two-thirds of them are held by the government. Since 2004, qualified foreign institutional investors, such as mutual funds, have been allowed to trade in “A” shares. “B” shares can be owned and traded by foreign investors.

Free markets are hobbled by the government, which mandates how many of what products will be manufactured and which holds two-thirds of the shares listed on China’s domestic exchange.

Hong Kong has a separate stock market, which is so new that it is classified as emerging. The total market capitalization for all of China is still less than Hong Kong’s, she said.

The world’s largest bank is the Industrial and Commercial Bank of China. It is ranked third in the world for market capitalization, which Chang reminded the audience is “number of shares outstanding times price per share.”

Citigroup, the world’s second-largest bank, ranks tenth, but it has three times more profits than ICBC.

“When China’s stock market dropped five percent in one day,” Chang said, television news announcers worried about its ripple effect globally. “What was the impact in the U.S. market? Nothing! It’s too small.”

Many call China’s stock market legalized gambling, or the world’s largest casino.

In China, the growing middle class keeps out of the markets, with 85 percent preferring to “put money under the mattress or in the bank” instead of into stocks and bonds. In the U.S., 23 percent of savers put their money in banks, 34 percent into the stock market and 5 percent into bonds.

Chang explained some of the wild swings in the Shanghai and Shenzen stock exchanges.

“When new regulation comes,” she said, “the market tanks.”

Any sudden removal of central control, she acknowledged, would bring disaster.

“When the Chinese government wants to change any policy, they don’t call it a change in policy,” Chang said, “They call it an experiment. If it’s called an experiment, and it doesn’t work, they can yank it out.”

Within the last few years, changes aimed at improving financial reporting and protecting investors have started to send Chinese indicators upward.

If China maintains its recent growth rate of 11 percent compared to 2 percent for the United States and Japan, she said, it will be the world’s largest economy by 2050.

And when that happens, it might pay to remember a saying that comes not from Confucius but from what Chang called the Harvard Business School’s Golden Rules for China, Number 3: “Western business logic does not apply.”

dnaylor@projo.com